Tax penalty scare

By Stew

Our household taxes are always been fairly complicated. This is mostly due to the fact that Mrs. Stew and I have always had multiple streams of income. While God has blessed me with steady, full-time jobs over the course of our marriage, we have always had to supplement our income with part-time, self-employed and contract labor sources of income. So when I go to calculate our gross income every April, I always have to account for a pile of W-2 forms, 1099 forms and other miscellaneous income . . . and then come the deductions . . .  Add to that the complexity of the IRS tax code in this country, needless to say, I make a mistake once in a while. Usually the mistakes are pretty minor, although I did have to pay a penalty a couple of years ago when I mistakenly thought that we qualified for the Earned Income Credit.

Therefore, when I received a letter in the mail from the State of Colorado claiming that we still owed a balance on our state taxes, I was annoyed, but not all that surprised because it was certainly possible that I had missed something. The notice of tax deficit indicated that the balance due was $127 plus a $15 penalty plus $20 worth of interest for a total of $162. Of course my first thoughts were how can I get out of this? and what did I do wrong? It was kind of like that feeling you get when you are pulled over for speeding – you try to defend yourself, but deep down, you know that the officer is probably right.

However, as I looked at the page more carefully, I became convinced that there was no way that this penalty was going to stick. First, the letter did not explain the deficiency in any way. Like I said, I have gotten these letters before and they typically reference and spell out the tax error. This letter simply stated the amount owed along with the applicable tax year. When I saw the tax year, I knew that it was going to be difficult to make me pay. The letter said that my deficit was from 2007, but I and my family lived in Wisconsin for all of 2007.

Therefore, my next task was to try to figure out how to convince the tax bureaucracy that I should not have to pay this deficit and penalty.The letter provided three venues for contesting the penalty: phone, internet and letter. It also stated that if I did not pay or my protest was not filed within 30 days of my receipt of the letter, then penalties and interest would continue to accrue.

The first thing that I tried was calling the phone number, of course that was a colossal waste of time. After taking ten minutes to wade through all of the various voice mail options, I arrived at the proper department, where the recorded message said something to the effect of “we cannot take your call, in fact, we cannot even be bothered with a voice mail. Goodbye.” Just like that, my call was disconnected.

The letter also provided an internet url where I could file a protest. I immediately walked over to the computer, surfed to the right place, entered my information and stated that I thought that this penalty was in error since I did not even live in the state at the time of the supposed offense. After clicking “submit”, I figured that this incident was over.

Over, until a month later, I found a second letter in the mail. This letter stated that since my appeal of the tax penalty had NOT been received in writing within 30 days of my receipt of the original letter, I now owed $176! I knew that I had filled out the online appeal and the original letter stated that an online appeal was a valid way to challenge the claims . . . however, the presence of the second letter seemed to challenge my perception of reality. At that point, in a most likely vain to attempt to grasp at straws, I quickly typed out and fired off a snail mail letter to the Colorado Department of Revenue hoping that somehow that too-late letter would get me out of this mess. I knew that the deficit and penalty were in error, but convincing the bureaucracy of that fact seemed like a hopeless task. I also started to prepare myself for the reality that since the amount was too small to justify a contest in court, I would probably have to simply pay it in order to avoid a tax lien, collections report or any of the other big sticks that a department of revenue can bring to a tax dispute.

The next day, I opened the mailbox to find a letter from the Colorado Department of Revenue explaining that my online challenge to the tax deficit had been accepted and that I no longer owed the money. Just like that the problem was solved. It turned out that my online contest of the penalty had been accepted, after all.

My suggestion? That the Department of Revenue take the person who is sending out all those mistaken letters and re-assign that person to answer phones.


4 Responses (including trackbacks) to “Tax penalty scare”

  1. Gina Says:

    Glad it worked out. And not so glad to see that Colorado is just as messed up as Georgia. By the way, keep all that paperwork “until the end of time.” You never know when it will come back up. I would also double check your credit reports while you are at it.

  2. Stew Says:

    That’s probably a good idea . . .

  3. Jonathan Says:

    I’m pleased you managed to sort it out. It can be quite disheartening when you have worked so hard to manage taxes and then you discover that a genuine oversight has occured

  4. Emily Says:

    Good job with your tenacity and persistence! May it never happen again.